The letter written under the aegis of Association of Power Producers (APP) said that the move would be retrogade step that would deter investment in the sector as overseas equipment were not only being delivered on time but companies were also getting cheaper credit from export financing agencies.
The concerns raised by power producers have come at a time when power ministry has moved a note for the Cabinet proposing 5% customs duty along with a 10% countervailing duty (equal to excise duty on domestic industry) and a special additional duty of 4% on overseas equipment supplies for power projects. The duty is aimed at supporting domestic equipment manufacturers such as Bhel and L&T facing stiff competition from overseas equipment makers, especially the Chinese, and encourage setting up of new manufacturing facilities by others to cater to the growing demand from the power sector.
We sincerely believe that any step at this stage which increases the cost of power for consumers and leads to delays in capacity addition, would be very detrimental to the sector, APP director general Ashok Khurana said in the letter to the Prime Minister.
The association has said that the need for a import duty as this stage was also unjustified as rupee depreciation against both dollar and yuan has already meant that imported equipment at present are priced 14-15% higher. The average INR/CNY exchange rate for February 2010 was 6.79 while it was 7.79 last Friday (24th February 2012), a depreciation of 14.7%.
Currently, equipment imported for projects of less than 1,000 MW capacity 5% customs duty while those above that enjoy levy exemption.
We request your consideration of the issues and continue the duty benefits for power projects..., the letter has said.
APP is a grouping of about 22 companies, including Reliance Power, Tata Power, Lanco Infratech and Adani Power, that account for 95% of total generation capacity in the private sector.
The concern of the industry on import duty stems from the fact that close to half (45%) of the equipment orders of about 56,000 MW placed by companies for different project in 11th and 12th Plan period are overseas and about 48,000 MW of this is from China alone. BHEL accounts for about 50% of the balance orders.
BHELs order book is 3.7 times its turnover while it is 7.1 times for L&T. This puts a severe constraint on ability of domestic players to supply within a given period, the letter said.
The domestic power sector is grappling with multiple woes including fuel scarcity, rising coal prices and environmental hurdles.